TEA Time: Not a Golfing Event!

Dodd may be run out of Dodge and it can't come too soon. (See 1 below.)

Ne'eman sees Netanyhau in deep trouble either way. (See 2 and 2 a below.)

Elliot Spitzer spits out his views about AIG and points his finger at the real culprits. He may have prostituted himself but he has a point. (See 3 below.)

Determining the life of one and balancing the risk to a nation. (See 4 below.)

Tea time and not a golfing event. (See 5 below.)

Paul Samuelson poses the correct question - can Capitalism survive Obama? He thinks so because it has.

Even Paul Krugman is beginning to sweat. (See 6 and 6a below.)

The fun begins while Obama talks. (See 7 below.)

It's only our children's future so why care! (See 8 below.)

Dick


1) Dodd's political stock tumbles in Connecticut
By ANDREW MIGA,

Democrats may want to start thinking about a bailout for Senate Banking Committee Chairman Christopher Dodd, whose political stock has slipped amid the financial meltdown.

As a five-term Democrat who blew out his last two opponents by 2-1 margins in a blue state that President Barack Obama won handily, Dodd, D-Conn., should be cruising to re-election in 2010. Instead, he's feeling heat from a Republican challenger eager to make him a poster boy for the tumult in the housing and financial markets.

A recent poll showed former Rep. Rob Simmons running about even with Dodd, a former national Democratic Party chairman.

As head of the banking panel, Dodd, 64, has become a convenient target for voter anger over the economic crisis.

"The fact that we have been beaten up, beaten around the head for the last eight or nine months on a regular basis has contributed to it as well," Dodd said.

Some of the worst blows came amid the furor over $165 million in bonuses American International Group Inc. paid some of its employees while receiving billions of dollars in federal bailout money. After first denying it, Dodd admitted he agreed to a request by Treasury Department officials to dilute an executive bonus restriction in the big economic stimulus bill that Congress passed last month. The change to Dodd's amendment allowed AIG to hand out the bonuses and sparked a blame game between Dodd and Treasury Secretary Timothy Geithner.

Dodd was guarded Thursday when asked about Geithner.

"This is obviously a matter that obviously should have been dealt with differently, but we are where we are," he said.

Republicans branded Dodd's reversal "astonishing and alarming" and fingered Dodd as the top recipient of campaign cash from AIG employees over the years.

The GOP is slamming Dodd, claiming he is cozying up to Wall Street insiders, raking in bundles of their campaign cash, shirking his banking panel duties and running for president as the economic crisis erupted in 2007.

He's also under investigation by a Senate ethics panel for mortgages he got from Countrywide Financial Corp., the big lending company at the center of the mortgage crisis.

A takedown of a national party figure like Dodd would be a coup for Republicans eager to rebound from their recent congressional losses.

"This is a state we will be actively participating in," said Amber Wilkerson, a spokeswoman for the National Republican Senatorial Committee.

Republicans are also turning a spotlight on Dodd's longtime friendship with Edward Downe Jr., a former director of the Bear Stearns investment firm who was snared in an insider trading scandal. Dodd owned a condo with Downe in a fashionable Washington neighborhood but bought out Downe's share in 1990 after learning Downe was under investigation. Downe eventually pleaded guilty to trading inside information.

During the final days of the Clinton administration, Dodd wrote a letter supporting a pardon for Downe. "Mr. President, Ed Downe is a good person, who is truly sorry for the hurt he caused others," Dodd wrote. The pardon was granted.

Dodd complained that the GOP is repackaging old stories.

"They're trying to weave things together that have been reported on widely over the years," Dodd said. "They are taking some items that are frankly, old news, routine transactions, and trying to make more out of it."

Dodd has acknowledged participating in a Countrywide VIP program, which he said he thought referred to upgraded customer service. He denied asking for or receiving any special treatment when he refinanced his homes in Washington and East Haddam, Conn., in 2003.

"There was no sweetheart deal," Dodd said.

He faced criticism in his home state for not releasing details of his mortgages until several months after the controversy surfaced last summer. He concedes his sluggish response was a mistake.

The Countrywide controversy came after a failed presidential bid by Dodd that soured many Connecticut voters because he was out of state campaigning so much.

Dodd moved his family to Iowa for several weeks before the caucuses, adding to the home-state backlash.

Simmons is a former CIA officer who served three terms in Congress representing a Democratic-leaning district. He's a fiscal conservative who split with his Republican Party on issues such as abortion rights and raising the minimum wage. He lost by 83 votes to Democrat Joe Courtney in 2006.

In a hypothetical 2010 matchup, a recent Quinnipiac University poll showed Simmons with 43 percent of the vote and Dodd with 42 percent, a statistical dead heat.

Democrats said they're confident Dodd will rebound in the coming months. They note he has strong support among party activists in the state as well as nationally. Simmons could face a tough primary fight if other Republicans jump in, Democrats add.

"Senator Dodd will be fine when all the dust settles," said Nancy DiNardo, chairwoman of the Connecticut Democrats. "People are just really upset with everything that's happening" with the economic crisis.

2) Netanyahu Backed into a Corner?
By Yisrael Ne'eman

Likud PM designate Benyamin Netanyahu is almost in as much trouble if he succeeds in putting together a Right/Religious coalition as opposed to failing in such a venture. After his overtures to the centrist Kadima party were rejected by chairwoman Tsipi Livni over disagreements concerning the "two-state" solution conflict resolution with the Palestinians and the possibility of prime ministerial rotation between the two, Netanyahu is left with only such a narrow coalition option. As such he is open to every form of political blackmail possible.

There is now an agreement with his largest coalition partner Yisrael Beiteinu (15 seats) which included the concession of the foreign ministry to party chairman Avigdor Leiberman along with another four portfolios, a seeming impossibility only three weeks ago when negotiations began. But troubles remain as Leiberman still prefers a partnership with Kadima thereby building a more centrist government at the last moment. On the home front, Netanyahu is increasingly under pressure in his own party, especially by Sylvan Shalom and supporters who expected the vice-premiership and foreign ministry to be theirs. Getting YB into the coalition is the easy part.

Netanyahu is said to be close to an agreement with the ultra-orthodox (haredi) Sephardi Shas (11 mandates) and will try to negotiate down their financial demands for subsidized housing, haredi schools/yeshivas and possibly even a separate education portfolio, increased funding for child allowances and the demand for military draft deferments. Except for the last demand, all this costs billions in an economy which is at least 10% short on tax collection for the as yet to be passed 2009 state budget. Luckily for the Likud Shas spiritual mentor Rabbi Ovadia Yosef will instruct the party to join the coalition, but obviously cannot betray the basic needs of the party electorate meaning the Likud will make all the major concessions necessary.

The Ashkenazi haredi United Torah Judaism (5 seats) faction consults the Council of Torah Sages and can be expected to put forth similar conditions to those of Shas but to settle for less compromises. Shas is a member of the outgoing government while UTJ is not and has proven over the years to be a more difficult junior coalition partner.

Up to here there are 58 mandates out of the 120 in the Knesset. To get to 61 is the biggest problem. The two remaining parties – the National Union (4) and Jewish Home (3) are politically and ideologically connected to the national religious movement and as such demand the legalization of any settlements deemed illegal, continuing settlement activity in the West Bank (Judea and Samaria) costing billions and are firmly opposed to a two-state solution. Their foreign policy and settlement platforms vis-à-vis the Palestinians are red flags to the Americans and Europeans. Netanyahu needs at least one of these factions to form an extremely narrow Right/Religious coalition – a nightmare of a governing alliance both financially and in terms of political diplomatic cost. Regime stability is out of the question.

Only twice before has Israel had such Right/Religious coalitions with no centrists to moderate the equation. Only Menachem Begin's second government (1981-84) where Yitzchak Shamir took over after Begin's resignation in the summer of 1983 and Shamir's two year reign from 1990-92. Both governments faced financial and diplomatic pressures due to the demands of the haredi and hard line right wing factions, exactly as today.

Netanyahu knows the realities but is becoming a prisoner to his own rhetoric as leader of the "nationalist" wing in the Knesset. His only way out is also quite unpleasant as he must agree to a prime ministerial rotation agreement with Livni and Kadima while uttering the hated phrase "two-state solution" when explaining the foundations of conflict resolution with the Palestinians. It is one thing to project the image necessary to win an election but coalition building and ruling a country as complicated as Israel are in another league.

2a) Likud-Labor talks start, take Netanyahu close to government


Their guidelines are based on a joint effort to rescue the economic from recession and mass unemployment and also embody a commitment by the government headed by Binyamin Netanyau to hold diplomatic negotiations with the Palestinians and Syria. There is no reference to the two-state formula espoused by Kadima.

Defense minister Ehud Barak hopes his Labor party will agree to join the government in which he will retain defense. Negotiations are led for Labor by Ofer Eini, trade unions strongman, who is determined to take the party into government to ease the pressures expected to cause massive layoffs. The economy will be Netanyahu's priority as prime minister. He has prepared a comprehensive recovery program with Eini and business leaders.

The deal signed with the ultra-religious Shas before dawn Monday March 23 gives the prime minister-designate 53 out of 120 Knesset seats after Israel Beitenu signed on last week assigning foreign affairs to its leader Avigdor Lieberman.

Barak's Labor party is deeply riven over his commitment to join the Netanyahu line-up and stay on as defense minister. The second ultra-religious party United Torah Judaism (5) is expected to finalize negotiations by the end of the day. Defense minister Ehud Barak's Labor party is deeply riven over his commitment to join the Netanyahu line-up.

He jumped the gun Sunday by setting up a team of his supporters to kick off negotiations with Likud Monday morning, hoping to have a finished draft accord to present to the party's central committee Tuesday. The session may be delayed for Barak to build a majority to endorse his proposal. If he fails, he is considering defecting from Labor and joining the government regardless. If he succeeds, he will have five senior cabinet posts to hand out to his party plus the chairs of two of the most powerful parliamentary committees. Labor may also face a split. By the end of the week, this process will have worked its way to a conclusion one way or the other.

Shas has come away with four cabinet posts, including interior for its leader Ellie Yishai, housing and the National Lands Authority, as well as a pledge to raise child allowances and allocations for the yeshiva seminaries.

The second ultra-religious party United Torah Judaism (5) is expected to finalize negotiations by the end of the day.

With Labor, Netanyahu will have a comfortable majority of 71 seats without the two nationalist parties which are still waiting in the wings. With them and without Labor, he has 65. He has until the end of next week to present a viable government to the president. It looks like a romp.



3) The Real AIG Scandal:It's not the bonuses. It's that AIG's counterparties are getting paid back in full.
By Eliot Spitzer


Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. *****So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.*****

*****It all appears, once again, to be the same insiders protecting themselves against sharing the pain and risk of their own bad adventure. The payments to AIG's counterparties are justified with an appeal to the sanctity of contract. If AIG's contracts turned out to be shaky, the theory goes, then the whole edifice of the financial system would collapse.*****

*****But wait a moment, aren't we in the midst of reopening contracts all over the place to share the burden of this crisis? From raising taxes—income taxes to sales taxes—to properly reopening labor contracts, we are all being asked to pitch in and carry our share of the burden. Workers around the country are being asked to take pay cuts and accept shorter work weeks so that colleagues won't be laid off. Why can't Wall Street royalty shoulder some of the burden?***** Why did Goldman have to get back 100 cents on the dollar? Didn't we already give Goldman a $25 billion capital infusion, and aren't they sitting on more than $100 billion in cash? Haven't we been told recently that they are beginning to come back to fiscal stability? If that is so, couldn't they have accepted a discount, and couldn't they have agreed to certain conditions before the AIG dollars—that is, our dollars—flowed?

*******The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.*******

*******So here are several questions that should be answered, in public, under oath, to clear the air:*******
What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?

Was it already known who the counterparties were and what the exposure was for each of the counterparties?

What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?

What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.

Why weren't the counterparties immediately and fully disclosed?
*******Failure to answer these questions will feed the populist rage that is metastasizing very quickly. And it will raise basic questions about the competence of those who are supposedly guiding this economic policy.*******

4) Gilad Shalit Media Event
By Yisrael Ne'eman


Over the past week there was non-stop media coverage of vigils and protests demanding that the Israeli government make the prisoner swap necessary to ensure the release of captured soldier Gilad Shalit who has now spent over 1000 days as a Hamas prisoner. Abducted in a Hamas commando raid on Israeli territory Shalit was taken to Gaza where he has been a prisoner ever since. The Olmert cabinet is negotiating his release through Egyptian mediators but is not willing to cut a deal involving the return of certain Hamas murderers convicted of involvement in homicide/suicide bombings which killed and injured thousands of Israelis. Hamas has submitted a list of over 400 convicted terrorists, many with the blood of dozens of Israelis on their hands.



Approximately half of all convicted terrorists return to terrorism once freed. It is estimated there will be hundreds of Israeli casualties from such attacks should the more deadly among them be released to Gaza and/or the West Bank . Israel has agreed to free quite a few with "blood on their hands" but with the stipulation they be sent to third party countries. So far all deals have been rejected by Hamas for Shalit's release.


Yet you would barely know this from engaging the Israeli media. Night after night Shalit's release was the main story with the Israeli government standing accused of having abandoned him. Family, friends and supporters of his freedom are constantly interviewed while those who claim the price in the future blood of innocents is far too high are barely heard when allotted an obligatory few minutes to express their opinions, many of whom are relatives of terror victims and deserving of media time.


In short the media is having a field day playing on everyone's emotions while working to pressure the government to accept virtually any price to attain Shalit's release. Certainly for Gilad's family he is more important than policy considerations but governments are responsible for the security and well being of all their citizens and with all due respect to the massive suffering by the family and captured soldier himself the government cannot abdicate its responsibility to the rest of the nation. The Shalit advocates are being far from honest as pointed out by the extreme left wing (and Israel reviler) Haaretz journalist Gideon Levi who makes clear that protesting for Shalit's release is not the issue since there is no disagreement among the Israeli public here. He demands that protesters stop being hypocritical and carry placards demanding the release of hundreds if not thousands of terrorists because that is the real issue. (I hate the thought of agreeing with Gideon Levi. Let it be pointed out that he very much wants to release terrorists while I find the idea repugnant.)


The problem with the mainstream media is that they have all the perceived authority but no real responsibility while convincing the average person of their expertise which for the most part they do not have. Even when trying to "balance" the story they play on everyone's emotions. "What would you do if he was your son?" They do not ask the Shalit advocates "How many blood thirsty terrorists would you release if you were the prime minister and will you take full responsibility for all of their terror acts in the future?"


The press can always say they made a mistake in analyzing the situation or in showing too much support for a certain side. Take the "Four Mothers" protest organization established in the late 1990s during Israel 's last years in the south Lebanese security zone. Four women whose sons served in Lebanon built an impressive and very influential extra-parliamentary organization demanding an Israeli withdrawal to the international border with Lebanon . By 1999 and the election of Labor's Ehud Barak as PM, they had obtained enormous media coverage and convinced many politicians of their case, especially on the Left and Center of the spectrum. But their greatest ally was the media who gave them exposure, played up their cause and eventually saw it as a collective victory of "the people" through a grass roots civilian movement defeating the "frozen thinking" of military and political leaders. The Four Mothers, the media and their supporters forgot (or preferred not) to read Hezbollah Sec. Gen. Hassan Nasrallah's writings and speeches taken from Ayatollah Khomeini's repertoire where international boundaries, secular states and any non-Shiite theocratic political entity is to be destroyed. Israeli withdrawal to the international border was seen as a defeat for the Jews and not the beginning of conflict resolution as mistakenly understood in the West.


When the Second Lebanon War broke out in July 2006, one of the Four Mothers interviewed expressed "confusion" and a lack of understanding of what was happening. Another member was said to be abroad – possibly permanently. As friendly as the media tried to be, by the end of the war commentators were blasting government "short sightedness", lack of preparation for an eventual conflict and Ehud Barak's widely hailed withdrawal from the south Lebanese security zone in May 2000. Everyone was to blame except the media. They "only" report the news. The media was completely innocent of forcing events, making the news themselves, taking a position on major issues, influencing public opinion or ever truly making a mistake. The media was not culpable in any way and only offered "balanced" commentary. Somehow, if forced to, most people remember otherwise, if they care to remember at all.


Eventually there will be a deal, either in the last days of the Olmert administration or afterwards. When bombings and terror attacks will be traced to those released the media will interview Shalit activists. Whether caught speechless or not, the answers to be supplied to the relatives of the terror victims will be insufficient. And the media will be blameless as usual.


Certainly we must negotiate for Shalit's return but all must be within reason, meaning without threatening the security of the state and its citizens and if there is a danger it must be curtailed as much as possible. All of these protests and vigils, while being of emotional comfort for the Shalit family, have only raised the price of Gilad's release adding more murderers to the list of Hamas terrorists to be freed. The operation backfired as he is still a prisoner and Hamas demands become more intransigent with time. Islamists everywhere are now further encouraged to abduct or capture Israelis and/or westerners and in particular soldiers, knowing they can demand a heavy price in the release of terrorists in the future.


The Jewish State must do its best to free all in captivity and all soldiers should know it. On the other hand recapturing those released murderers who will return to terrorism will cost Israel quite a few casualties. Many speak of a soldier's combat motivation being affected if he does not believe he will be freed if taken prisoner. Why is no one speaking of the combat motivation of those special units who risk their lives day and night rounding up Hamas terrorists only to see them released? Who will want to join such dangerous units that keep Israel safe on a daily basis if everything they do gets washed away in a give away prisoner exchange? And what does our enlightened media have to say about this?


And finally, Gilad's freedom and security are dear to all. But let us not forget, so are the freedom and safety of all of us whether in the present or in the future. No one is worth more than Corporal Shalit, but then no one individual life is worth less either.

5)We currently have people in 1000 cities organizing for the TEA Party Day Rally April 15. Help us grow that number to 1,500!

Also, call your U.S. Representative and/or your two U.S. Senators and ask him or her to speak at your TEA Party Rally. You can reach all three at 202-224-3121. If you can't get your Representative or Senators to speak, ask your state representative or senator to speak.

6) Can American Capitalism Survive?
By Robert Samuelson

"Can capitalism survive? No. I do not think it can."

-- Joseph Schumpeter, 1942

WASHINGTON -- The story of American capitalism is, among other things, a love-hate relationship. We go through cycles of self-congratulation, revulsion and revision. Just when the latest onset of revulsion and revision began is unclear. Was it when Lehman Brothers collapsed? Or when General Motors pleaded for federal subsidies? Or now, when AIG's bonuses stir outrage? No matter. Capitalism is under siege, its future unclear.

Schumpeter, one of the 20th century's eminent economists, believed that capitalism sowed the seeds of its own destruction. Its chief virtue was long-term -- the capacity to increase wealth and living standards. But short-term politics would fixate on its flaws -- instability, unemployment, inequality. Capitalist prosperity also created an oppositional class of "intellectuals" who would nurture popular discontents and disparage values (self-enrichment, risk-taking) necessary for economic success.

Almost everything about Schumpeter's diagnosis rings true with the glaring exception of his conclusion. American capitalism has flourished despite being subjected to repeated restrictions by disgruntled legislators. Consider the transformation. In 1889, there was no anti-trust law (1890), no corporate income tax (1909), no Securities and Exchange Commission (1934) and no Environmental Protection Agency (1970).

We have subordinated unrestrained profit-seeking to other values. "We've gradually taken into account the external effects (of business) and brought them under control," says economist Robert Frank of Cornell University. External costs include: worker injuries from industrial accidents; monopoly power; financial manipulation; pollution.

Great reform waves often proceed from scandals and hard times. The first discredits business; the second raises a clamor for action. Parallels with the past are eerie. "No one in 1928 thought that the head of the New York Stock Exchange would end up in Sing Sing (prison) in 1938," says historian Richard Tedlow of the Harvard Business School. That was Richard Whitney, convicted of defrauding his clients. Flash forward: Bernie Madoff, once head of NASDAQ and also a member of the financial establishment, goes to the slammer, a confessed swindler.

Some guesses about capitalism's evolution seem plausible. The financial industry -- banks, investment banks, hedge funds -- will shrink in significance. Regulation will tighten; required capital will rise. Profitability will fall. (Until recently, finance represented 30 percent or more of corporate profits, up from about 20 percent in the late 1970s.) More of the best and brightest will go elsewhere.

But Schumpeter's question remains. Will capitalism lose its vitality? Successful capitalism presupposes three conditions: first, the legitimacy of the profit motive -- the ability to do well, even fabulously; second, widespread markets that mediate success and failure; and finally, a legal and political system that, aside from establishing property and contractual rights, also creates public acceptance. Note that the last condition modifies the first two, because government can --through taxes, laws and regulations -- weaken the profit motive and interfere with markets.

The central reason why Schumpeter's prophecy remains unfulfilled is that U.S. capitalism -- not just companies, but a broader political process -- is enormously adaptable. It adjusts to evolving public values while maintaining adequate private incentives. Meanwhile, the ambitious, striving character of American society supports an entrepreneurial culture and work ethic -- capitalism's building blocks. As for new regulations, many don't depress profitability because costs are passed along to consumers in higher prices.

It's also wrong to pit government as always oppressing business. Just the opposite often holds. Government boosts business.

Some New Deal reforms helped "by making risk more manageable," says Stanford historian David Kennedy. Deposit insurance ended old-fashioned bank panics. Mortgage guarantees aided a post-World War II housing boom. Homeownership skyrocketed from 44 percent in 1940 to 62 percent in 1960. Earlier, the federal government distributed 131 million acres of land grants from 1850 to 1872 to encourage railroads. Land, as well as bank charters and government contracts, often went to the well-connected. Cronyism is sometimes capitalism's first cousin.

Still, the present populist backlash may not end well. The parade of big companies to Washington for rescues, as well as the high-profile examples of unvarnished greed, has spawned understandable anger that could veer into destructive retribution. Congressmen love extravagant and televised displays of self-righteous indignation. The AIG hearing last week often seemed a political gang beating.

If companies need to be rescued from "the market," then why shouldn't Washington permanently run the market? That's a dangerous mindset. It justifies punitive taxes, widespread corporate mandates, selective subsidies and meddling in companies' everyday operations (think the present anti-bonus tax bill). Older and politically powerful companies may benefit at the expense of newer firms. Innovation and investment may be funneled into fashionable, though economically dubious, projects (think ethanol).

Greater government is an inevitable reaction to today's economic breakdown. But there is a thin line between "saving capitalism" from itself and vindicating Schumpeter's long-ago prediction.

6a) Financial Policy Despair
By PAUL KRUGMAN

Over the weekend The Times and other newspapers reported leaked details about the Obama administration’s bank rescue plan, which is to be officially released this week. If the reports are correct, Tim Geithner, the Treasury secretary, has persuaded President Obama to recycle Bush administration policy — specifically, the “cash for trash” plan proposed, then abandoned, six months ago by then-Treasury Secretary Henry Paulson.

This is more than disappointing. In fact, it fills me with a sense of despair.

After all, we’ve just been through the firestorm over the A.I.G. bonuses, during which administration officials claimed that they knew nothing, couldn’t do anything, and anyway it was someone else’s fault. Meanwhile, the administration has failed to quell the public’s doubts about what banks are doing with taxpayer money.

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

Let’s talk for a moment about the economics of the situation.

Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.

As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.

That’s what Sweden did in the early 1990s. It’s also what we ourselves did after the savings and loan debacle of the Reagan years. And there’s no reason we can’t do the same thing now.

But the Obama administration, like the Bush administration, apparently wants an easier way out. The common element to the Paulson and Geithner plans is the insistence that the bad assets on banks’ books are really worth much, much more than anyone is currently willing to pay for them. In fact, their true value is so high that if they were properly priced, banks wouldn’t be in trouble.

And so the plan is to use taxpayer funds to drive the prices of bad assets up to “fair” levels. Mr. Paulson proposed having the government buy the assets directly. Mr. Geithner instead proposes a complicated scheme in which the government lends money to private investors, who then use the money to buy the stuff. The idea, says Mr. Obama’s top economic adviser, is to use “the expertise of the market” to set the value of toxic assets.

But the Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.

The likely cost to taxpayers aside, there’s something strange going on here. By my count, this is the third time Obama administration officials have floated a scheme that is essentially a rehash of the Paulson plan, each time adding a new set of bells and whistles and claiming that they’re doing something completely different. This is starting to look obsessive.

But the real problem with this plan is that it won’t work. Yes, troubled assets may be somewhat undervalued. But the fact is that financial executives literally bet their banks on the belief that there was no housing bubble, and the related belief that unprecedented levels of household debt were no problem. They lost that bet. And no amount of financial hocus-pocus — for that is what the Geithner plan amounts to — will change that fact.

You might say, why not try the plan and see what happens? One answer is that time is wasting: every month that we fail to come to grips with the economic crisis another 600,000 jobs are lost.

Even more important, however, is the way Mr. Obama is squandering his credibility. If this plan fails — as it almost surely will — it’s unlikely that he’ll be able to persuade Congress to come up with more funds to do what he should have done in the first place.

All is not lost: the public wants Mr. Obama to succeed, which means that he can still rescue his bank rescue plan. But time is running out.

7) Iran Has Started a Mideast Arms Race -
By AMIR TAHERI

In the capitals of Western nations, Abdul Qadeer Khan, the man regarded as the father of the Pakistani atom bomb, is regarded as a maverick with a criminal past. In addition to his well-documented role in developing a nuclear device for Pakistan, he helped Iran and North Korea with their nuclear programs.

But since his release from house arrest a month ago, Mr. Khan has entertained a string of official visitors from across the Middle East. All come with messages of sympathy; and some governments in that region are looking to him for the knowledge and advice they need to fast track their own illicit nuclear projects.

Make no mistake: The Middle East may be on the verge of a nuclear arms race triggered by the inability of the West to stop Iran's quest for a bomb. Since Tehran's nuclear ambitions hit the headlines five years ago, 25 countries -- 10 of them in the greater Middle East -- have announced plans to build nuclear power plants for the first time.

The six-nation Gulf Cooperation Council (Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates [UAE] and Oman) set up a nuclear exploratory commission in 2007 to prepare a "strategic report" for submission to the alliance's summit later this year. But Saudi Arabia is not waiting for the report. It opened negotiations with the U.S. in 2008 to obtain "a nuclear capacity," ostensibly for "peaceful purposes."

Egypt also signed a nuclear cooperation agreement, with France, last year. Egyptian leaders make no secret of the fact that the decision to invest in a costly nuclear industry was prompted by fears of Iran. "A nuclear armed Iran with hegemonic ambitions is the greatest threat to Arab nations today," President Hosni Mubarak told the Arab summit in Riyadh, Saudi Arabia two weeks ago.

Last November, France concluded a similar nuclear cooperation accord with the UAE, promising to offer these oil-rich lands "a complete nuclear industry." According to the foreign ministry in Paris, the French are building a military base close to Abu Dhabi ostensibly to protect the nuclear installations against "hostile action," including the possibility of "sensitive material" being stolen by terrorist groups or smuggled to Iran.

The UAE, to be sure, has signed a cooperation agreement with the U.S. forswearing the right to enrich uranium or produce plutonium in exchange for American nuclear technology and fuel. The problem is that the UAE's commercial hub, the sheikhdom of Dubai, has been the nerve center of illicit trade with Iran for decades, according to Western and Arab intelligence. Through Dubai, stolen U.S. technology and spent fuel needed for producing raw material for nuclear weapons could be smuggled to Iran.

Qatar, the smallest GCC member by population, is also toying with the idea of creating a nuclear capability. According to the Qatari media, it is shopping around in the U.S., France, Germany and China.

Newly liberated Iraq has not been spared by the new nuclear fever. Recall the history. With help from France, Iraq developed a nuclear capacity in the late 1970s to counterbalance its demographic inferiority vis-à-vis Iran. In 1980, Israel destroyed Osirak, the French-built nuclear center close to Baghdad, but Saddam Hussein restored part of that capacity between 1988 and 1991. What he rebuilt was dismantled by the United Nations' inspectors between 1992 and 2003. But with Saddam dead and buried, some Iraqis are calling for a revival of the nation's nuclear program as a means of deterring "bullying and blackmail from the mullahs in Tehran," as parliamentarian Saleh al-Mutlaq has put it.

"A single tactical nuclear attack on Basra and Baghdad could wipe out a third of our population," a senior Iraqi official told me, on condition of anonymity. Since almost 90% of Iraqis live within 90 miles of the Iranian border, the "fear is felt in every town and village," he says.

Tehran, meanwhile, is playing an active part in proliferation. So far, Syria and Sudan have shown interest in its nuclear technology, setting up joint scientific committees with Iran, according to the official Islamic Republic News Agency. Iranian media reports say Tehran is also setting up joint programs with a number of anti-U.S. regimes in Latin America, notably Venezuela, Bolivia, Nicaragua and Ecuador, bringing proliferation to America's backyard.

According to official reports in Tehran, in 2006 and 2007 the Islamic Republic also initialed agreements with China to build 20 nuclear-power stations in Iran. The first of these stations is already under construction at Dar-Khuwayn, in the oil-rich province of Khuzestan close to the Iraqi border.

There is no doubt that the current nuclear race in the Middle East is largely prompted by the fear of a revolutionary Iran using an arsenal as a means of establishing hegemony in the region. Iran's rivals for regional leadership, especially Turkey, Egypt and Saudi Arabia, are aware of the propaganda appeal of the Islamic Republic's claim of being " the first Muslim superpower" capable of defying the West and rivaling it in scientific and technological fields. In that context, Tehran's development of long-range missiles and the Muslim world's first space satellite are considered political coups.

Mohamed al Quwaihis, a member of Saudi Arabia's appointed parliament, the Shura Council, warns of Iran's growing influence. Addressing the Shura Council earlier this month, he described Iranian interferences in Arab affairs as "overt," and claimed that Iran is "endeavoring to seduce the Gulf States, and recruit some of the citizens of these countries to work for its interests."

The Shura devoted a recent session to "the Iranian threat," insisting that unless Tehran abandoned its nuclear program, Saudi Arabia should lead the Arabs in developing their own "nuclear response." The debate came just days after the foreign ministry in Riyadh issued a report identifying the Islamic Republic's nuclear program as the "principal security threat to Arab nations."

A four-nation Arab summit held in the Saudi capital on March 11 endorsed that analysis, giving the green light for a pan-Arab quest for "a complete nuclear industry." Such a project would draw support from Pakistan, whose nuclear industry was built with Arab money. Mr. Khan and his colleagues have an opportunity to repay that debt by helping Arabs step on a ladder that could lead them to the coveted "threshold" to becoming nuclear powers in a few years' time.

Earlier this month, Mohamed ElBaradei, the retiring head of the International Atomic Energy Agency, warned that the Nuclear Nonproliferation Treaty has become a blunt instrument in preventing a nuclear arms race. Meanwhile, the U.S., France, Russia and China are competing for nuclear contracts without developing safeguards to ensure that projects which start as peaceful undertakings are not used as cover for clandestine military activities.

The Obama administration should take the growing threat of nuclear proliferation seriously. It should try to provide leadership in forging a united response by the major powers to what could become the world's No. 1 security concern within the next few years.

8) Obama Sticker Shock Article

President Obama's 2010 budget looks more astounding by the day, especially when someone other than the White House budget office is analyzing it. The latest case of epic sticker shock came Friday when the Congressional Budget Office published its assessment, which found that the proposals would increase the federal deficit by $2.3trillion more over 10 years than the White House had claimed.


Hey, what's a little rounding error among friends?

Mr. Obama keeps saying he has "inherited a trillion dollar deficit," which is true. But he's hardly an innocent bystander. CBO shows that the President is seeing that $1 trillion and raising it again and again, as far as the eye can see. In only two months, since the last CBO budget review in January, Democrats have passed laws that increase spending by $134 billion in the last six months of this fiscal year alone, and $1.2 trillion over the next 10 years. And that's all before his 2010 budget proposals.

The White House responded that CBO, which is also now run by Democrats, has a more pessimistic economic forecast than do White House economists. But not by much. CBO expects growth this year to decline by 3%, while the White House's rosy scenario has it falling by only 1.2%. Both predict roughly the same growth rates in 2010 (2.9% for CBO vs. 3.2% for the White House) and 2011 (both 4%).

The big difference between the two guesstimates is in spending, with CBO calculating that Mr. Obama's proposals will increase federal outlays by $1.7 trillion more than the White House projects. Entitlement spending -- Medicare, Medicaid, and so on -- will increase by $1.1 trillion. In 2009 and 2010 alone, CBO estimates that Mr. Obama's budget will increase spending by $347 billion more than the White House claims.

As a share of GDP, CBO says this means spending will hit an astounding 28.5% in fiscal 2009, which ends this September, and still be at 25.5% next year, staying at close to 23% to 24% of the economy for the next decade. As CBO dryly notes, this is "above the average of 20.7 percent over the past 40 years." Even CBO's estimate is conservative because it assumes that most of the spending in the stimulus bill will be temporary, though Democrats are already planning to make much of it a permanent part of the budget baseline.

Where does this take the Obama budget deficit? Up into the great beyond. This year's deficit will hit 13.1% of GDP and next year's will still be at 9.6%, assuming a healthy recovery, and then never get below 4.1% for the entire decade. These deficits assume the passage of Mr. Obama's enormous tax increases in 2011 and $629 billion in new cap-and-tax carbon revenues. The share of debt held by the public will double -- to 82.4% in 2019 from 40.8% in 2008 (see nearby chart).

And by the way, all of this is without including the costs of Mr. Obama's plan to offer "free" health care for the middle class. The White House budget includes only a "down payment" on health care, with every serious person figuring it will cost at least $1.2 trillion, and probably more. Incredibly, Democrats on Capitol Hill are, with White House encouragement, talking about jamming health care through Congress with a special procedure that requires only 50 Senate votes.

At least after World War II, spending could, and did, decline rapidly when the country demobilized. In this case, with the bulk of federal spending geared toward income maintenance and transfer payments that have political constituencies, that won't happen. And that is part of Mr. Obama's plan. One unstated but clearly implicit goal of his budget is to put in place spending programs that make ever-more Americans dependent on government and that will require a permanently higher level of taxation to finance. All of this is being done in the name of addressing income inequality.

Republicans have an obligation to slow down this express train to a European welfare state, and to educate Americans so that they put pressure on Democrats who claim to be deficit hawks. If this budget passes in anything close to Mr. Obama's form, Republicans will spend the next two or three generations doing little more than collecting higher taxes from the middle class to finance the Obama revolution.

















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